Prime Minister Narendra Modi on Thursday met finance minister Nirmala Sitharaman and took a comprehensive review of the current state of the economy.
The meeting was to discuss the current state of the economy and to appraise the prime minister about the recent meetings of finance minister with the various industries and stakeholders, people aware of the matter told CNBC-TV18.
“Finance minister Nirmala Sitharaman appraised PM Modi about the recent meetings with various sectoral representatives. The FM informed the PM about the current challenges faced by auto and real estate sector, especially the inventory buildup in both the sectors,” the people told CNBC-TV18.
There could be measures in the offing to help auto and real estate sector clear inventory by creating an uptick in the demand. However, the people said that “already some measures have been announced in the budget but more could be coming soon, subject to PMs approval.”
Auto sector is facing its worst crisis in two decades. Auto industry body Society of Indian Automobile Manufacturers (SIAM) has said that manufacturers may have to cut FY20 auto sales estimates if the current slowdown continues. This comes after sales data for July reflected that passenger car sales were down 36 percent year-on-year (YoY).
While commercial vehicle (CV) sales are down 26 percent YoY, there is no respite for the two-wheeler segment as well. The sales are down 17 percent when compared to the same period a year ago. According to sectoral experts, the lack of liquidity in NBFCs (non-banking financial companies) is one of the key reasons behind the auto slowdown. On top of it, banks demanding 25 percent collateral for inventory financing has also impacted dealers majorly.
Reports suggest that many auto dealerships have been shut down which has lead to lakhs of job cuts in the sector. SIAM says about 10 lakh jobs have been hit in the auto component manufacturing industry.
Sources also added that the “PM was worried about job cuts and the issue of credit availability for the micro small and medium enterprises (MSME). The PM has asked the FM to streamline ideas to spur jobs and business sentiment.”
The government believes the housing sector is a bigger worry as the unsold inventory pile is getting bigger with time. Total unsold inventory for tier 1 cities stands at 6.65 lakh which is worth over Rs 5.53 lakh crore. Mumbai region alone has an unsold inventory pile of over 2.22 lakh worth Rs 2.52 lakh crore and NCR region has 1.81 lakh unsold inventory worth Rs 1.13 lakh crore.
The meeting between the two leaders led to a detailed discussion after which Modi has asked Sitharaman to come up with suggestions on possible solutions.
Modi has also asked the finance minister to come up with detailed analysis on the reasons behind the recent fall in stock markets and the economic slowdown. “More PM-FM level meetings are lined up in the coming days before government could announce measures on the stimulus for the economy,” sources said.
On the issues related to the stock markets and investors, “The FM informed the PM about concerns shared by foreign portfolio investors (FPIs), apart from the surcharge, all other structural and operational issues pointed out by FPIs were discussed,” sources said.
However, sources clarified that “the PM is yet to take a final call on the removal of the surcharge from FPIs”.
So that decision is still pending with the PMO.
On goods and services tax (GST) rate cut proposals, the discussion between the two ministers highlighted on a possible GST rate rationalization on certain items but it will be subject to GST Council's approval and which items could come up for rate cut is a decision still in the works, sources added.
There are expectations that the government would come out with sector-specific stimulus sometime soon.
India's economic growth has slowed to 6.8 percent in 2018-19 — the slowest pace since 2014-15 — slipping consumer confidence and investment have raised red flags for the government. International trade and currency war too is a matter of concern.
The Reserve Bank of India (RBI) governor had earlier this month stated that the slowdown is more cyclical than structural and the growth is expected to be reviewed by the fourth quarter.
Fast-moving consumer goods (FMCG) companies have reported a decline in volume growth in the first quarter.
Finance minister Sitharaman had held series of meetings with bankers, industry, capital market players and real estate earlier this month to firm up steps to increase investments and boost economy.